Page 139 - F3 -FA Integrated Workbook STUDENT 2018-19

Intangible assets

Example 1

Research and development costs

Platinum incurred the following items of expenditure during the year ended
31 December 20X7:

(i) initial investigation work to develop a new chemical compound which
would disintegrate plastic – $30,000. The results of the work to date,
although promising, are inconclusive. Platinum intends to continue this
investigation work.

(ii) purchase of a licence to manufacture a hand tool with unique design
features – $50,000. The licence term is for five years, commencing
1 October 20X7.

(iii) creation of a new material which will make the wetsuits of deep-sea
divers luminous under water – $80,000. Of this total, $20,000 relates to
materials testing. Following the materials testing, the project was
regarded as technically feasible and commercially viable, with Platinum
committed to devoting sufficient resources to progress things.

Required:

Explain whether each of the items of expenditure meet the criteria to be
recognised as an intangible asset.

Solution

(i) There has been insufficient progress for this research activity to be
classified as development costs. $30,000 must therefore be written off
to profit or loss.

(ii) This can be classified as an intangible asset and amortised over five
years on a straight-line basis, commencing from 1 October 20X7.

(iii) This can be classified as an intangible asset from the date the project
meets the recognition criteria per IAS 38. Therefore $20,000 is written
off as research expense and $60,000 is recognised as an intangible
asset.

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